Definition of 'Ratio Analysis'
There are many different types of ratios that can be used to analyze a company's financial health. Some of the most common ratios include:
* **Profitability ratios** measure a company's ability to generate profits. These ratios include the return on equity (ROE), return on assets (ROA), and profit margin.
* **Liquidity ratios** measure a company's ability to meet its short-term obligations. These ratios include the current ratio, quick ratio, and cash ratio.
* **Solvency ratios** measure a company's ability to meet its long-term obligations. These ratios include the debt-to-equity ratio, debt-to-assets ratio, and interest coverage ratio.
* **Growth ratios** measure a company's growth over time. These ratios include the earnings per share (EPS) growth rate, revenue growth rate, and book value growth rate.
By analyzing a company's ratios, investors can get a better understanding of its financial health and its ability to generate profits. This information can be used to make informed investment decisions.
Ratio analysis is a powerful tool that can be used to evaluate a company's financial health. However, it is important to remember that ratios are only one piece of the puzzle. Investors should also consider a company's business model, competitive landscape, and management team when making investment decisions.
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